For the first time members are to be given powers to hold their pension schemes to account over how social and environmental factors impact their investments, with new regulations requiring trustees to produce a policy which includes an assessment of the sustainability of their investment decisions
This policy will need to be available to members so that they can make their own assessment of efforts to combat various risks, including climate change, poor corporate governance and socially harmful practices. Defined contribution schemes will need to make this policy available to the wider public.
Esther McVey, secretary of state for work and pensions said: ‘As we see the younger generation who care more about where their money is going, they are also increasingly questioning that their pensions are invested in a way that aligns with their values.’
The Department for Work and Pensions (DWP) has now opened a consultation on clarifying and strengthening trustees’ investment responsibilities.
This follows on from an earlier review resulting in the Law Commission’s report, Pension Funds and Social Investment, published in June 2017.
Under the new proposals by 1 October 2019, trustees of pension schemes who are required to produce a statement of investment principles (SIP) will need to set out how they take into account financially material risks, whether these stem from investee firms’ traditional financial reporting, or from broader risks covered in nonfinancial reporting or elsewhere.
This will include, but is not limited to, environmental, social and governance (ESG) considerations, including climate change, and their policies in relation to the stewardship of the investments, including engagement with investee firms and the exercise of the voting rights associated with the investment.
Schemes offering money purchase benefits, subject to a few exceptions, will have to publish their SIP on a website so that it can be found and read by both scheme members and interested members of the public, and inform scheme members of its availability via the annual benefit statement. They will also be required to produce an implementation report and a statement setting out how they will take account of members’ views.
The consultation on the new requirements closes on 16 July.
Consultation on clarifying and strengthening trustees’ investment duties is here.
Report by Pat Sweet
